China Contracts

China contracts are the basis of all China projects. Here, we have a fairly inclusive view of China contracts, including guarantees of various types, documents taking security over assets, licences for intellectual property such as trademarks, copyright, and patents, and technology transfer when we refer to China contracts.

Many China contracts turn out to be unenforceable

It is an unfortunate truth that many contracts used for China transactions turn out to be unenforceable, to the great cost of the disadvantaged party. This is usually not a China problem but a problem that the China contract documents used were not really created for use in China. Typically, documents that would be quite useful in the home jurisdiction do not meet the standards necessary for certainty in a China contract.

To be enforceable, any contract relies on a good technical understanding of the governing law, and China is no exception to this. However, even when foreign law governs, there are many instances where the contract provisions must also comply with Chinese law. Failure to ensure this can mean that the whole contract, or important parts of it, will not be enforceable.

We have many years of experience with managing China contract issues. We are well aware of those that are likely to be a problem, and draft our China contracts accordingly. Because of the nature of our work, we mostly custom draft all or part of China contracts to ensure that it is suitable for the particular transaction. Put simply, we make our China contracts fit the task at hand. We do not try to make a project comply with a preconceived China contract template or precedent.

China contracts should also be a road map for future behavior

In our view, a viable China contracts do not only exist to create legal rights and obligations but should also act as a road map for the future behavior of the parties. In this capacity it is important that China contract should be as easily understood by the parties as is possible. This is important because we want our China contracts to be practical in performance as well as being legally sound.

Our aim is to have the subject matter delivered on time, at the agreed price and quality, and use our China experience to maximize the likelihood of this outcome in all of our China contracts.

Damages as a remedy for breach are important, but a very poor substitute for performance of the contract as agreed.

We recommend that China contracts be in English and Chinese (or other appropriate languages), with the Chinese draft being produced as early as practical in the negotiation process. This ensures the maximum chance of understanding on both sides. If there is a misunderstanding about any term in a China contract we want to know about it, and correct it as soon as possible in the negotiation process, not later in contract management, or by a contract variation.

China contracts need accurate translation

Of course, bi-lingual drafting of China contracts requires accurate translation. Unfortunately, accurate translation is not easy to find in China so we manage all translation in-house for confidentiality and quality control. We take this part of our work very seriously and all of our China contracts are finally checked by lawyers with appropriate language skills. You would not let a non-lawyer draft a contract. Why would you believe that a non-lawyer could confirm legal accuracy of translation in China contracts? A question that is not asked often enough in the China context.

It is relatively easy to find superior language skills in a single language. It is difficult to find a person with superior language skills in two languages. It is quite rare to find a person with the combination of superior language skills in two languages together with legal training and understanding. That is what is required if your China contract is going to be accurately translated, and that is why you should be asking about who will do the translation of your contract.

Experience is important for successful China contracts

We have been responsible for many China contracts with values in the tens of millions of dollars, a number for more than a hundred million dollars. Irrespective of the contract sum, we apply the same principles of combining our extensive on the ground experience in China with our clients’ detailed knowledge of their business. This is the path to successful outcomes with China contracts.